Moody’s Corporation

MCO Details

Moody's Corporation (NYSE: MCO) is a well-known credit rating agency known as Moody's Investors Service or MIS. MIS accounts for most of the company's income and earnings. Moody's Analytics, which includes Research, Data, and Analytics (RD&A) and Enterprise Risk Solutions (ERS), is the company's other segment. Credit research, quantitative credit scores, business intelligence, commercial real estate data and training services are among the items offered by RD&A.

 Latest Updates:

• RMS Moves More Models to High Definition: On May 18 2022, RMS, a Moody's Analytics subsidiary, will release four new High DefinitionTM (HD) models: Europe Windstorm, North America Winterstorm (WT), North America Severe Convective Storm (SCS), and Terrorism which represents the next generation of risk modelling from Moody's, enabling greater insight and granularity and provides for a more realistic representation of event footprints over bigger event sets.
• Share Repurchase: Moody's repurchased roughly 0.5 million shares for USD 158 million, or an average cost of USD 350.60 per share, and issued a net of 0.5 million shares as part of its employee stock-based compensation programmes in Q1 FY22. In April 2022, Moody's also completed a USD 500 million accelerated share buyback (ASR) programme.

Q1 FY22 Results:

• Slight Drop in Revenue: MCO sales fell 5% in Q1 FY22 to USD 1.52 billion, down from USD 1.60 billion in Q1 FY21, as its comprehensive risk assessment products added value in uncertain times, demonstrating resilient performance against a complex background.
• Margins vs Profitability: In Q1 FY22, the company's EBITDA and Net margins were 48.2% and 32.7%, respectively, much better than the Industry Median. Furthermore, the margin expansion is fueled by recurring revenue growth, as seen below.

(Source: Company Filings)

• Debt and Cash Position with Continuous Growth in Dividend: The Company has good liquidity, with USD 1.9 billion in cash and short-term assets and a USD 1.25 billion revolving credit line. It has a 2.0x net debt to adjusted operating income ratio. Leverage well below the maximum covenant of 4.0x total debt / EBITDA. The firm has paid a consistent dividend, as shown below.

(Source: Company Filings)

Key Risks:

• Regulation Risk: Moody works in a highly regulated business heavily controlled by federal, state, and municipal governments. If these laws and regulations and any future rulemaking or court decisions lower demand for credit ratings or raise prices, Moody's may not be able to pass those costs on to clients.
• Competition Risk: IHS Markets, Bloomberg, Refinitiv, Morningstar, Kroll Bond Rating Agency, Fitch Rating, Axesor, and S&P Global are all competitors that can influence Moody's Corporation's operations and new product launches.

FY22 Outlook:

(Source: Company Filings)

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Source: Analysis by Kalkine Group)

Stock Recommendation:

MCO's stock price has fallen 25.98% in the past six months and is currently leaning towards the lower end of its 52-week range of USD 407.94 to USD 269.47. We have valued the stock using the EV/Sales multiple based relative valuation methodology and arrived at a target price of USD 335.71.

Considering the past decrease in stock, the company's solid profile, consistent performance, FY22 forecast, y-o-y dividend growth, industry top margins, long-term business plan, associated risks, and present value. We recommend a "Hold" rating on the stock at the current market price of USD 285.61 as of June 06, 2022, at 09:14 AM PDT.

1 Year Technical Price Chart (as of June 06, 2022, at 09:14 AM PDT). Source: REFINITIV, Analysis by Kalkine Group 

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors' appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.